Collectors can refuse partial payments

Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets.Ask Sally a question, or read her previous answers in the To Her Credit archive

Dear To Her Credit,
Can a collection agency really refuse my payment? I have a debt I can't pay in full. I've tried to work with them and offered to make monthly payments. They keep telling me they will not accept anything but the full balance. Ignoring what they told me on the phone, I sent in a partial payment in a money order because I know they didn't accept personal checks.

A short time later, they returned my money order with a letter stating they do not accept partial payments. They will only accept the full balance or take me to court to garnish my wages. I was shocked. Can they really do that?

I just don't understand why collections would refuse any payment that was being offered. I understand they want to get the largest amount paid to them as they can possibly get, but to actually return a payment? Wow, that's hard core! -- Barb

Dear Barb,
Collection agencies can and do refuse payments. There's no law saying they have to accept a check or money order.

Some people might tell you that as long as you send something in every month, creditors can't take collection action against you. Unfortunately, that's a myth. Whenever you pay less than the amount you and the creditor have agreed to, you are in danger of having legal action taken against you.

I've also heard people say you should send a few dollars, even if the collection agency sends it back, because it looks better to the judge if you ever go to court. Deborah McNaughton, president of Professional Credit Counselors, does not recommend that strategy. "Sure, it looks better," she says. "But if they didn't have an agreement, they're going to come back and say, 'We didn't have an agreement.'"

When a collection agency won't accept a payment plan in writing, McNaughton says, "she may be better off stockpiling her money." When you have a decent amount saved up, you will be in a better position to try to negotiate a settlement with the agency. "It's better doing that than sending in little bits and pieces," she says.

Many people have the misconception that they can bargain with a creditor before they really have anything to bargain with. You need to give the creditor a reason to talk to you. "Don't call and fish," says McNaughton. Instead, make them a solid offer they won't want to refuse. She recommends that if you owe $2,000, for example, you could call and say, "I have $1,000 I can send to you in 72 hours, if you put it in writing."

Before you send or even offer any money, make sure you really owe it. People often assume bills are correct. If they've been having financial difficulty, they may even have lost track of all their bills. Whenever a bill pops up that you're not sure about, ask for "validation" -- proof that you owe the money and that they have the right to collect it. "They cannot collect if they can't show ownership," says McNaughton. "Say, 'I want validation and verification of all paperwork on this debt.'" In many cases, that's the last you'll hear from them. CreditCards.com has debt collection sample letters, including a verification of debt sample letter.

One more thing to check: Look up your state's statute of limitations laws. If the debt is old enough, it may not be collectable anymore. In that case, you should write a letter telling the collection agency that you know the debt cannot be collected in court and to stop contacting you.

Published: June 24, 2011

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